VOLUME 2 AIR OPERATOR AND AIR AGENCY CERTIFICATION AND APPLICATION PROCESS

Section 1 General

2-536 DIRECTION AND GUIDANCE.

A. General. This chapter provides direction and guidance on the application process of Title 14 of the Code of Federal Regulations (14 CFR)
part 91 subpart K
(part 91K), Fractional Ownership Operations.
This process, if followed, will lead to successful compliance with Title 49
of the United States Code (49 U.S.C.)formerly the Federal Aviation Act (FA Act of 1958)and 14 CFR. Under no circumstances will an applicant be issued
management specifications (MSpecs) until Flight Standards District Offices (FSDO)
and, if necessary, the Certification Services Oversight Process (CSOP) Coordinator
are confident that the prospective applicant is capable of fulfilling the required
responsibilities, is willing to comply with 14 CFR in an appropriate and continuing
manner, and can safely conduct all requested authorizations.

B. Three Gates. Included in the five phases of the application
process are three gates. The three gates are particular points in the process at which requirements must be met before proceeding to the next part of the application process.

NOTE: In some cases, the guidance and suggested sequence of events in
this document may not be entirely appropriate. In such situations, the Federal
Aviation Administration (FAA) and the applicant should consider existing conditions and circumstances.

C. Fractional Ownership Programs. Fractional ownership programs
are subject to an FAA oversight program similar to that provided to air carriers,
with the exception of line checks and en route inspections. FAA aviation safety
inspectors (ASI) conduct scheduled and unscheduled inspections and surveillance
of personnel, aircraft, records, and other documents to ensure compliance with the regulations.

2-537 BACKGROUND.

A. Historical. Before the publication of
part 91K, there was
no regulatory definition of fractional ownership. Most fractional ownership programs were operated under
part 91. Some programs incorporated the fractional
ownership principles related to the sale and purchase of aircraft, but aircraft
were then leased to an air carrier and operated under 14 CFR
part 135 of the regulations. Other programs operated under
part 91, aircraft were leased to an air carrier, and owners had the
option of operating rules. Further, numerous programs were marketed as “fractional ownership programs” or variations of fractional ownership programs that do not meet the regulatory definitions or
program elements.

B. Current. Part
91K establishes regulatory requirements for fractional ownership
programs and their program managers and owners. This regulation defines the program and program elements, allocates operational control responsibilities and authority to the owners and program manager, and
provides increased operational and maintenance safety requirements for fractional ownership programs. Section
91.1001 defines the applicability and elements of a fractional ownership program.
Part 91K further defines the owner and program manager
responsibilities and safety standards. Fractional ownership programs and operations are subject to the applicable provisions of
part 91, in addition to the specific requirements for these
programs defined in
part 91K.
Section 91.501 assigns rights and responsibilities of owners, fractional owners,
and program managers. Additional requirements can be found in part
91 subpart F.

C. Programs Not Fitting Regulatory Definitions. Shared aircraft ownership or management arrangements that do not fit within the regulatory definitions or applicability of
part 91K should be reviewed on a case‑by‑case basis to determine
the appropriate regulatory requirements. For example, a shared aircraft arrangement where the
owners pilot their own aircraft might more appropriately fit the definition
of a flying club or other ownership option not subject to
part 91K. Operations that involve compensation should be closely
examined to determine if they can be operated under the provisions of
§ 91.501 (interchange, joint ownership, or time share), under exceptions to
part 119,
121, or
135, whether they are subject to the rules applicable to air carriers or
commercial operators. Programs marketed as fractional ownership programs that
do not meet the regulatory definitions of a fractional ownership program should
not continue to market the program as a fractional ownership program. These
programs are encouraged to change their marketing names to reflect the appropriate regulatory requirements.

2-538 DEFINITIONS AND ELEMENTS. Definitions of a fractional ownership
program and the elements of that program are summarized below.

A. Affiliate of a Program Manager. A manager that directly or
indirectly controls, is controlled by, or is under common control with another
program manager through one or more intermediaries. The holding of at least
40 percent of the equity and 40 percent of the voting power of an entity will
be presumed to constitute control for purposes of determining an affiliation.

B. Dry-Lease Aircraft Exchange. An arrangement, documented by
the written program agreements, under which the program aircraft are available,
on an as-needed basis without crew, to each fractional owner.

C. Dry-Lease Aircraft Exchange Agreement Among All of the Owners.
This agreement requires all owners to provide their share(s) of their aircraft
to other owners in the program. It allows an owner to use any aircraft in the
“program aircraft pool” for that program manager or affiliate of that program
manager. An owner’s share of an aircraft equates to a predetermined number of
flight hours, or ratio of flight hours, in the type or types of aircraft in
the program fleet. The dry-lease exchange provision applies to affiliate programs,
but does not allow the dry-lease exchange among other fractional ownership programs
that are not affiliates.

D. Fractional Owner or Owner. An individual or entity that possesses
a minimum fractional ownership interest in a program aircraft and that has entered
into the applicable program agreements, provided, however, that in the case
of the flight operations described in
§ 91.1001(b)(6)(ii), and solely for purposes of requirements pertaining to
those flight operations, the fractional owner operating the aircraft will be deemed a fractional owner in the program managed by the affiliate.

E. Fractional Ownership Interest. The ownership of an interest
or holding of a multiyear leasehold interest and/or a multiyear leasehold interest
that is convertible into an ownership interest in a program aircraft.

F. Fractional Ownership Program or Program. Any system of aircraft
ownership and exchange that consists of all of the following elements:

• The provision for fractional ownership program management services
by a single fractional ownership program manager on behalf of the fractional owners;

• Two or more Airworthy aircraft;

• One or more fractional owners per program aircraft, with at least
one program aircraft having more than one owner;

• Possession of at least a minimum fractional ownership interest
in one or more program aircraft by each fractional owner;

• A dry-lease aircraft exchange arrangement among all of the fractional
owners; and

• Multiyear program agreements that cover the fractional ownership, fractional ownership program management services,
and dry-lease aircraft exchange aspects of the program

G. Fractional Ownership Program Aircraft or Program Aircraft.

1) An aircraft in which a fractional owner has a minimal fractional
ownership interest and that has been included in the dry-lease aircraft exchange
pursuant to the program agreements; or

2) In the case of a fractional owner from one program operating
an aircraft in a different fractional ownership program managed by an affiliate
of the operating owner’s program manager, the aircraft being operated by the
fractional owner, so long as the aircraft is included:

a) In the fractional ownership program managed by the affiliate of the operating
owner’s program manager, and

b) In the operating owner’s dry-lease aircraft exchange pursuant to the
program agreements of the operating owner’s program; or

3) An aircraft owned, in whole or part, by the program manager
or affiliate that has been included in the dry-lease aircraft exchange and is
used to supplement program operations.

H. Fractional Ownership Program Flight or Program Flight. A flight, under
part 91K, when one or more passengers or property designated by a
fractional owner are on board the aircraft.

I. Fractional Ownership Program Management Services or Program Management
Services. Administrative and aviation support services furnished in accordance with the applicable requirements of
part 91K, or provided by the program manager
on behalf of the fractional owners include, but are not limited to, the:

• Establishment and implementation of program safety guidelines;

• Employment, furnishing, or contracting of pilots and other crewmembers;

• Training and qualification of pilots and other crewmembers and
personnel;

• Scheduling and coordination of the program aircraft and crews;

• Maintenance of program aircraft;

• Satisfaction of recordkeeping requirements;

• Development and use of a program operations manual and procedures; and

• Application for and maintenance of MSpecs and other authorizations and approvals.

J. Fractional Ownership Program Manager or Program Manager. The
entity that offers fractional ownership program management services to fractional
owners and is designated in the multiyear program agreements referenced in §
91.1001(b)(5)(vi), to fulfill the requirements of the rule applicable to
the manager of the program containing the aircraft being flown. When a fractional
owner is operating an aircraft in a fractional ownership program managed by
an affiliate of the owner’s program manager, the references in this subpart
to the flight‑related responsibilities of the program manager apply, with respect
to that particular flight, to the affiliate of the owner’s program manager rather
than to the owner’s program manager.

K. Management Services. The provision for management services
by a single program manager or affiliate program manager on behalf of the fractional
owners.

1) Specific program manager operational control and operating responsibilities are specified in
part 91K. Examples of management services are listed in §
91.1001(b)(8) and include, but are not limited to:

• The hiring, qualification, and scheduling of personnel, pilots,
and other crewmembers;

• The development of program manuals, training programs, recordkeeping
systems, and other documents;

• Application and maintenance of FAA approvals, MSpecs, and other
authorizations; and

• Maintenance of the program aircraft.

2) Program approvals are issued to the program manager on behalf
of the owners. The program manager provides an agent for service on behalf of
the fractional owners. This does not prohibit the FAA from contacting an individual
owner, if warranted. However, most correspondence, program approvals and coordination,
and other contact will take place between the FAA and the program manager’s
agent for service or identified points of contact.

L. Minimum Fractional Ownership Interest. Either:

1) A fractional ownership interest equal to or greater than 1/16
of at least one subsonic, fixed‑wing or powered‑lift, program aircraft, or

2) A fractional ownership interest equal to or greater than 1/32
of at least one rotorcraft program aircraft.

M. Multiyear Program Agreements that Cover Fractional Ownership,
Management Services, and the Dry‑Lease Exchange Aspects of the Program.
An owner and program manager will sign contracts concerning the sale or long-term
lease of the aircraft, provision of management services, and for the dry‑lease
exchange provisions of the program. Contracts generally last 3 to 5 years and
reflect an ownership interest in the aircraft. Additional contractual requirements and elements are specified in
part 91K, including:

• Requirements for the program manager to comply with specified regulations,

• The owners’ right to audit programs,

• The designation of the program manager as an agent for service, and

• Provisions for the FAA to contact the owner.

N. One or More Owners per Fractional Ownership Program Aircraft, With at Least One Aircraft Having More Than One Owner. The owners’ names
are depicted on the aircraft’s registration certificate. A long‑term lease arrangement
is considered to be a method of financing an ownership interest and is considered
equivalent to an ownership interest. At any time, the program manager may own
an entire aircraft or shares in an aircraft. The program manager may also buy
back shares in accordance with contract requirements. These aircraft or aircraft
shares are called “core aircraft” and are considered a necessary element of
the aircraft fleet. The percentage of core aircraft in a fleet may vary. However,
this percentage should be a minority percentage, except for the initial inception of the program.

O. Possession of a Minimum Fractional Ownership Interest in One or More Program Aircraft by Each Fractional Owner. A substantive ownership interest is the essential element to
validate fractional ownership as a private operation under
part 91. A minimum share is at least
1/16 for a subsonic, fixed‑wing or powered‑lift, fractional ownership program aircraft
or at least 1/32 for a rotorcraft fractional ownership program aircraft. Programs
that provide more than 16 owners per aircraft, including subleased shares that result in an ownership
interest smaller than 1/16 (or 1/32 for rotorcraft), are required to be operated under part
135 or
part 121, as applicable. Ownership interests are converted to a
number of hours based on a predetermined ratio or formula. Each owner’s use of the program aircraft
cannot exceed the ownership share. Other methods of allocating owner’s hours
of use may be used such as a point system or allocated number of days of use
provided the formula is predetermined, and equates to hours of use, and the
owner’s use does not exceed the ownership share. The need for additional hours
or use can be obtained through a number of means, including:

• Charter,

• Purchase of additional shares within that program, or

• Purchase of additional aircraft outside of that program.

P. Two or More Airworthy Aircraft. A minimum of two aircraft
is required in order to establish the dry‑lease exchange element of the program.
A program with a single aircraft and multiple owners does not meet the definition
of fractional ownership and might more appropriately be classified as joint
ownership, partnership, or another form of shared aircraft ownership. An aircraft
that is briefly or temporarily unairworthy because of mechanical failure or
required maintenance or inspection does not affect this definition of Airworthy
aircraft or the ability of the program to continue to operate under part 91K.

2-539 OPERATIONAL CONTROL.

1) The owner is in operational control when that owner directs
the carriage of persons or property and the aircraft is carrying those persons
or property. That owner has operational control of that flight regardless of
whether that aircraft is owned by that individual owner, or is an aircraft from
the dry-lease exchange pool.

2) The program manager has operational control when using the
aircraft for training, sales demonstration, ferry, or positioning flights.

3) A program aircraft can also be leased to an air carrier and operated under
part 135 or
121, as appropriate, to the seating configuration and payload capacity
of the aircraft. When the aircraft is operated by an air carrier, the air carrier has operational control.

B. Safe Operations and Compliance with Regulations. The owner
of the aircraft or share of the aircraft is ultimately responsible for safe
operations and compliance with the regulations. The owner(s) may delegate the
performance of tasks to the program manager and can rely on the program manager
for aviation expertise and management services. In addition,
part 91K specifies certain responsibilities of the program manager,
including recordkeeping, establishing safety programs, preparing manuals and training
programs, maintaining MSpecs, and other aviation services. When tasks are delegated,
both the owner and the program manager are jointly and individually responsible
for compliance. Any enforcement will be reviewed on a case‑by‑case basis to
determine which party or parties had responsibility for operational control
of any flight or operation. Enforcement could result in suspension or revocation
of MSpecs, which could ultimately affect all owners in the program.

C. Operational Control and Management Service Contracts. Part
91K requires certain contracts pertaining to operational control and
management services responsibilities. These include:

1) A contract between the owners and program manager that requires
the program manager to comply with the applicable regulations.

2) A contract that provides the owner the right to audit the
records of the program manager that pertain to operational safety of the program
and show compliance with the regulations and MSpecs.

3) A contract that designates the program manager as the owner’s
agent for service to receive correspondence from the FAA. While the FAA will
generally correspond through the agent for service or other designated contacts,
the FAA has the right to contact the owner(s) directly, if necessary.

D. Owner’s Operational Control Responsibilities. The program
manager is required to brief the owner on the owner’s operational control responsibilities
at the time the initial, renewal, or extension of a program contract is signed.
The owner must review and sign an acknowledgement of these responsibilities.
The details that must be contained in this acknowledgement are contained in
§ 91.1013.

E. Basic Contracts and Agreements. Basic contracts and agreements
must be signed as part of the overall program. These include documents pertaining
to the sale of the aircraft share(s) and multiyear program agreements pertaining
to management services and the dry-lease exchange program. The industry standard
is a 3‑ to 5‑year contract duration.

F.Owner Acknowledgement/Contract Certification Statement. As part of the
certification process, the program manager can submit an owner acknowledgement/contract
certification statement instead of individual contracts. This statement certifies
that the required contracts contain the necessary regulatory provisions. See Figure 2-10.

Figure 2-10. Certification of the Execution of Agreements

I, ____________________, an officer of ______________________ (the Program Manager), which manages the ___________ Fractional Ownership Program (the Program), certify that the Program satisfies the
eligibility requirements of Title 14 of the Code of Federal Regulations (14 CFR)
part 91 subpart K
(part 91K) and that the agreements required under
part 91K have been executed. These agreements include:

1) A Dry-Lease Exchange Agreement,

2) A Management Contract, and

3) Statements of Acknowledgement of Fractional Owner’s Operational Control
Responsibilities.

The owners and I understand that the Federal Aviation Administration (FAA) has the right to inspect all contracts.

I. The Dry-Lease Exchange Agreement or other program agreements between
the program manager and owners related to aircraft exchange address the following:

1) Mandate that two or more Airworthy aircraft be available in the long
term.

2) Allow the fractional owners of an aircraft to use (through the program
manager) aircraft owned by other fractional owners within the same program.

3) Clarify that the program manager will schedule the aircraft from within
the dry-lease exchange pool and provide other aviation expertise and services
to the owners.

4) Specify this is a multiyear program agreement.

II. The Management Contract or other agreements between the program manager and the owners related to program management services address the following:

1) Specify this is a multiyear program contract.

2) Require the program manager to ensure that the program conforms to
all applicable requirements of
part 91K.

3) Provide the owner or owner’s designee the right to inspect and to
audit the records of the program manager that relate to the operational safety
of the program and those records required to show compliance with the management
specifications (MSpecs) and all applicable regulations.

4) Designate the program manager as the owner’s agent to
receive service of notices from the FAA.

5) Acknowledge the FAA’s right to contact the owner
directly.

6) Prohibit an owner from carrying persons or property for
compensation or hire on a program flight except if such operations are carried out in compliance with14 CFR
part 121 or
135.

7) Limit the flight hours used during the term of the multiyear
agreement to the total hours associated with the owner’s share of ownership.

8) Prohibit the sale or lease of aircraft interest that is lesser
than the “minimum fractional ownership interest” unless the flights associated with that interest are operated under
part 121 or
135 and are conducted by an air carrier or commercial operator
certificated under
part 119.

9) State that the program manager will provide the owner the following
operating services and functions:

• Establishment and implementation of safety program guidelines,

• Employment, furnishing or contracting of pilots and other crewmembers,

• Training and qualification of pilots and other crewmembers and personnel,

• Scheduling and coordination of the program aircraft and crews,

• Maintenance of program aircraft under the terms of this Agreement,

• Satisfaction of record keeping requirements,

• Development and use of a program operations manual and procedures,

• Application for and maintenance of MSpecs and other authorizations and approvals from the FAA, and

• Training in the recognition of hazardous materials.

III. Each owner in the fractional ownership program has signed an Acknowledgment
of Owner’s Operational Control Responsibilities, and under the Acknowledgment,
the owner understands that the owner is in operational control of a program
aircraft and the owner must operate that program aircraft in accordance with
part 91K when the:

1) Owner has the rights and is subject to the limitations applicable
to the owner as set forth under
sections 91.1003 through
91.1013,

2) Owner has directed that a program aircraft carry passengers or
property designated by the owner, and

3) Program aircraft is carrying those passengers or property.

The owner understands that the owner is in operational control of a program
aircraft, even where the owner leases the program aircraft from another owner
through the Dry-Lease Aircraft Exchange (or Interchange) arrangement.

The owner understands and agrees to the responsibilities and potential liabilities
described below. When the owner is in operational control, the following apply:

1) The owner is responsible for safe operations and for complying with
all applicable laws and regulations and the management specifications issued to program manager.

2) Even though the owner may delegate to the program manager
performance of some or all of the tasks associated with carrying out owner’s responsibilities,
owner continues to be jointly and individually responsible, along with the program
manager, for performance of these tasks and for compliance with applicable requirements.

3) The owner may have liability risks in connection with the operation
of the program aircraft, including possible liability risks for at least enforcement actions for any noncompliance, and liability if a flight‑related occurrence causes personal injury or property damage.